Fission Uranium Price analysis articleFrom Mineweb.com:
https://www.mineweb.com/regions/canada/fissions-uranium-price/
HALIFAX – First let me say Canadian-junior Fission Uranium has its hands on a delightful discovery with the Triple R deposit. It’s already pretty big, high grade, and set to grow.
It and predecessor companies made the find a few years back in the Athabasca Basin, where the cream of the world’s uranium resides – at least in terms of grade. They recently calculated a 79.6 million pound uranium resource, indicated, at 1.58% U3O8. That’s quite sizeable and high grade by the industry’s standards.
Fission has released an early stage economic analysis (preliminary economic assessment or PEA in Canadian parlance) that puts the price tag at $1.1 billion to get it into production, with a 14-year mine life. It also anticipates pretty low operating costs per tonne – in the mid-teens per pound uranium.
But here’s my beef on the PEA and I’m not alone in having it. Fission (and RPA as the consultant) use $65/lb uranium as the base case in the PEA, giving it a catchy 35% IRR, post-tax. Yet current uranium prices are a lot lower in spot and contract markets and have been so for years.
Indeed, the resource itself is built around a $50/lb price. And consider what miners are getting in the market. Cameco’s average realized price for uranium over the past four years (to year end 2014) has been $48/lb, trading within a tight $47-$49/lb range.
That pricing reflects long-term contracts (for so much of production) in a world where the spot market has traded far lower in recent months, around the mid-$30s/lb. Uranium prices were crushed by the Fukushima-Daichi debacle and haven’t recovered much since.
Put another way, imagine a junior came out with a PEA today on a big gold project and used a gold price of $1,500/oz. That’s the equivalent of what Fission did with $65/lb uranium scenario.
Look I’m not saying you shouldn’t assess the upside potential of metal prices – especially on a project a few years out. You could fairly argue that the uranium price will rise, as analysts do and hit the $65/lb range in the next few years or so. China is building capacity. Japan is now coming back on stream, albeit slowly. Utilities have yet to restock in a meaningful way (I’m told). Supply has been curtailed. And so on, and so forth.
I think it’s fair to advertise that upside too. But it’s important as an element of conservatism in a volatile sector to show up front and in bold how something works at different prices, including recent ones. Otherwise it smacks of promotion getting the better of common sense.
Wouldn’t you like to know what Triple R looks like in terms of cash flow if it were selling into a market that has sold uranium, consistently, under $50/lb and a lot less for years now?
It probably (and we’ll have to wait for PEA to be filed) looks OK at current prices. Consider additional resources that Fission might bring into the fold and the already low operating cost at ~$15/lb uranium.
And in that respect there may have been a missed opportunity here. Fission probably could have painted a decent picture of the project at much lower uranium prices in the headline PR material.
It could have said, “Hey look, we can make this work at rock bottom prices.” And then, “Wow, look at the cash cow we are probably going to be once the prices recover, which we think is imminent and here’s why.”
Instead, you are confronted by the giant gap between the PEA pricing assumption and today’s market reality. You scratch your head. And you wait to look up the sensitivities somewhere in the full project report once it’s filed to get the IRR, etc. etc. at $45/lb uranium. That’s not good enough.